Surety is a unique form of insurance in which the surety
company’s financial resources back the contractor’s commitment to enter
into a contract with an owner. Surety bonds are a three-party agreement
among the owner (obligee), the contractor (principal), and the surety
company, and the surety company is obligated to both the obligee and the
principal.

Surety bonds provide financial security and construction
assurance to project owners by verifying that in the surety’s opinion
the contractor is capable of performing the work and will pay certain
subcontractors, laborers, and material suppliers. This is especially
important on public projects where taxpayers’ dollars are at risk.

How to Get a Bond?

Because most surety companies distribute surety bonds
through the agency system, the first step is to contact a professional
agent or broker, also known as a surety bond producer, who specializes
in contract surety. A professional surety bond producer guides the
contractor through the bonding process, helps establish and foster a
business relationship with a surety company, and assists in managing the
contractor’s surety capacity.

A professional surety bond producer can offer sound business
advice and technical expertise, such as contract document review. The
producer can introduce the contractor to other professionals or
consultants when appropriate.

The Value of 100% Contract Surety Bonds

Construction is a high risk endeavor. So, good construction risk management must account for the potential of a contractor default. Surety bonds are designed to transfer the risk of loss stemming from such a default onto the surety and away from project owners and other stakeholders. This is achieved through performance bonds, which secure a contractor’s performance of the contract work and payment bonds, which secure a contractor’s payment to its subcontractors and suppliers.

Carillion's Collapse and Why Bonding Matters

The collapse of the U.K. construction giant Carillion sent shockwaves throughout the global markets and prompted an immediate reminder that big contractors can fail. Insolvency experts predict a chain reaction is imminent for smaller construction firms to falter as a result of not receiving the payments owed. The Surety & Fidelity Association of America (SFAA) examines what reportedly went wrong with Carillion, what can we learn from this disaster and why it matters.

Canadian Study confirms what we know to be true in America....Bonding Matters

The Canadian Centre for Economic Analysis prepared the attached report with a goal to “illuminate surety’s value proposition
for policy-makers, the general public, and other key stakeholders.” One finding in the report states that “Non-bonded firms are ten-times
more likely than bonded companies to suffer insolvency.” So persuasive was the argument that, on Dec 5, 2017, the Ontario Legislature passed legislation similar to the Miller Act which mandates the use of surety bonds for public works projects including P3. The new Ontario law goes into effect on July 1, and requires “a contractor...to furnish the owner with a labour and material payment bond, and a performance bond, if the contract is above the amount set out in the regulations.”

(posted with permission from the Surety Association of Canada)

The California High-Speed Rail is a high-profile project that includes surety bonds. Bonding assures that the contract will be completed on-time and on budget.

Bonding empowers contractors and helps them achieve success. Watch Beverly Thomas, president of Regional Contracting Services in Washington, D.C. discuss how her bonding agent continues to play a large role in her success.

Using Surety and Fidelity Bonds to Protect Taxpayers, Empower Businesses and Enable Innovation

Contract,
commercial and fidelity bonds each serve a critical risk management and
public policy function. This handbook provides an overview of each of
these types of bonds, explains why bonding should be non-negotiable for
agencies hiring contractors and for businesses operating within a state
or local jurisdiction, and addresses how agencies can leverage this tool
to protect taxpayer dollars and strengthen the public procurement
process.